June 2007

US Dollar Weakness Trumps Market Manipulation

Posted On: Friday, June 29, 2007, 5:30:00 PM EST
Author: Jim Sinclair

Dear Friends,

They can manipulate as much as they want but it is all in the US dollar!

It is my opinion that those powerful short interests — both legal and illegal -are frantic to cover and are therefore pulling out all the stops.

Dirty tricks, use of media pals, and all the usual underhanded methods seem to populate everything these days from gold to gold shares of good value.

Using the baseball analogy, “Three strikes and you’re out,” I rate today as strike number two at the .8050 to .8150 range on the USDX. The interesting part of this is that commentators are looking at the differential rate between the US Fed and other Central Banks. My comment is, “Like hell that is the reason.”

The real reason is a meltdown of sub prime mortgages that appears to have caused Bear Stearns more of a problem than was first thought. When you see a new man come on board at Bear Stearns who specialized in asset maximization of corporations you know the horse dung has hit the proverbial fan.

I believe that Over the Counter Derivatives are now melting down, threatening many other well known international investment firms. And that is why the dollar looks like death warmed over. In addition, that is why the price of gold is under the great power of manipulation to hold it down so as not to reveal the degree of the problem.

Remember this about Over the Counter Derivatives:

1/ They have no regulation.
2/ They have no standards.
3/ Without standards there can be no viable market.
4/ They are unlisted
5/ They are traded by private treaty negotiation
6/ They are valued by “Mark to Model” which is a total cartoon.
7/ They have no financial guarantee such as a clearing house.
8/ They are unfunded special performance contracts floating in cyberspace. All funds in the OTC Derivatives are taken out as spreads and commissions.
9/ More than 50% of the earnings of major international investment banks come from granting in private treaty negotiations these instruments of mass financial destruction.
10/ The financial performance of the specific performance contract called OTC Derivatives depends on the financial capacity of the loser in the transaction.
11/ Control has been loose in the interest sensitive OTC Derivatives because of multiple dealings outside of the initiating two until no one knows who has what.
12/ The replacement value of these instruments is in the multi trillions of dollars.

Interest rate differential would not hammer the dollar as we are seeing today. Remember that three strikes and the US dollar is out. Expect every dirty trick and media negativity towards everything gold as quiet but frantic insiders attempt to offset a panic by subverting early warning systems.

Those in the know are frantic to cover their short positions which can only be accomplished if they stampede you by every means possible. They are going to fail. You are not. If you wish to screw the shorts royally – simply do nothing. They can make price but they cannot make cover as long as you are not spooked into selling everything gold. The gloves are off and the major battle between longs and shorts in gold is here!

Gold is going to $682 – $761 and then to $887.50 – $1000 plus

The bear market in gold shares is a total construction of bear raiding hedge funds that is doomed to failureJ. Sinclair's Mineset

Their really bad day is close at hand!

By: Richard J. Greene

There are just an overwhelming amount of bullish factors for gold and silver that are still cleverly being camouflaged so that the fewest possible can see them. From this point forward; remember the words of former Fed Chairman Paul Volker from the 1970’s, “the one mistake that I made was in not capping the gold price.” Do not forget that statement because they did not forget this time and that has created the most incredible investment opportunity for those that see through it that has ever existed. Control and manipulation in precious metals markets has reached a new level of transparency this year in an effort to discourage interest in the precious metals for their traditional investment merits.

A key event awakening the world to the continuing decline to worthlessness of fiat currencies led by the dollar; was when China was disallowed from spending some of its stockpile of reserves to purchase Unocal. China has amassed close to $1 trillion in reserves and has been instrumental in prolonging the viability of the U.S. dollar by recycling trade surpluses into U.S. bonds despite massive trade and budget deficits that can be traced to Americans consuming far in excess of what they are producing. The most basic of economic principles has been totally lost on the American public. Due to being led by feeble economic minds such as Ben Bernanke and Alan Greenspan, the American public has to be among the most economically illiterate empires in history. We have been on the verge of bankruptcy for so long that most don’t even have slightest hint that we would have crashed long ago if not for the arm twisting of other Central Banks by the U.S. to run similarly irresponsible monetary policies worldwide. The problem is right here in the United States and it starts with a lack of savings. (By the way, define saving as: that left over from the rewards of production that has not been totally consumed rather than the more commonly accepted; borrow money or extract equity to flip into the nearest asset bubble.) Yet our fearless financial leaders, (clowns), Helicopter Ben or Mr. Magoo would have you believe we Americans are bravely shouldering the world’s burden because we are more willing to consume with money we are borrowing from our trade partners and buying things we have not yet earned and taking rewards that others have earned and that we will be unable to repay. This is another form of the Adolph Hitler style of truth: say it often enough and they will believe it.

A debt-based fiat currency system that has now fully expanded worldwide has only one way to go and that is toward final collapse. Now that the U.S. has bought some time by convincing other countries to increase their money growth rates even higher than the U.S., we are at such high rates of growth worldwide, (on the order of 15%) that we are literally hurtling toward either hyperinflation or economic devastation. The U.S. is in a box and seriously at the mercy of other countries’ decisions because inflation is rising and we can not raise rates due to the leverage, particularly in housing, and we can not lower rates for fear the dollar will rapidly implode. Thus with money compounding worldwide at a 15%+ clip annually led by Russia at a 57% annual rate, inflation will be too obvious to even the biggest economic dullards. Even by holding rates constant the Fed would, in effect be easing aggressively as real rates would become even more negative than they already are. If you can not feel the walls closing in then you haven’t noticed the many countries that have spoken of diversifying their foreign exchange reserves or increasing their commitment to gold. Syria and Kuwait are the latest examples of countries that have had enough of the excessive money creation in the U.S. and have moved to de-link their currencies from the dollar. Our foreign policies have been heavy handed economically, militarily and financially. We are failing on all fronts and stand ready to slap China in the face with trade sanctions even while they have been most instrumental in keeping our currency from plummeting. We should fear the risk of a military aggression on our part is a bigger and bigger risk as our other two methods of control are weakening considerably. This would be an even bigger mistake. The U.S. dollar is on the way out and just because officials have convinced other countries to wreck their currencies at a faster rate does little to salvage anything except perhaps a little more time.

The U.S. continues to bleed enormous trade and budget deficits, has lost its industrial base, finds fewer takers of its oversupplied currency, and can’t even manufacture borderline positive economic statistics despite massive fraudulent manipulation. The World Gold Council earlier this month said world gold demand is running 31% above a year ago while supply continues to decline. The world’s largest producer, South Africa, saw gold production fall 7.5% last year to an 84 year low and continued declining in this year’s first quarter at an even greater rate despite an almost tripling of the gold price in the last five years. Gold production peaked in 2001 at 2645 tonnes and fell to 2470 tonnes by last year. Five of the top producers: South Africa, Canada, Australia, Peru, and the U.S. produced more than half that total in 2001 with 1330 tonnes and saw that drop off to only 1095 tonnes in 2006. These stats make a pretty compelling bullish case yet gold is trashed in the press, the TV, financial advisors, and especially the bullion banks and the gold cartel. They have resorted to an especially incredible tactic of late; instead of smashing down gold when negative news for gold is released, they especially whack it when gold positive news is released. Despite these attempts gold has held up even with heavy Central Bank sales, heavy shorting in the futures markets, double leasing of the same gold, and attacks on the gold ETF which has been driven down with dollars being thrown at these paper markets. Meanwhile, jewelry sales are up 17% and physical demand was high on any sell-offs.

The tide is turning as gold as a percentage of global currency is now down to 10% from a high of 84% back in 1950; so the Central Banks are running out of ammo to cap the gold price. Of course, those investors that continue to make their gold investments in the paper markets of the futures markets and the gold and silver ETF’s are helping to cap the price because the gold cartel will someday run out of gold but they will never run out of paper. These instruments are what help them to crush the charts of the stocks and the metals causing chartists and technical players to pile on downswings. There is more technical analysis on the major gold websites than ever…forget them, they do not matter. First of all 99% of them are trying to chart gold and the stocks in dollars and that is a totally frivolous effort. The dollar is a measure of nothing with unlimited supply at any point in time. Technical analysis is another tool being used to cap gold and gold stocks, nothing more at this point. Don’t listen to technical analysis and don’t listen short term price explanations of the days action. If you do, you will notice: higher interest rates are bad for gold; lower interest rates are bad for gold; high oil prices are bad for gold; lower oil prices are bad for gold; get it?…EVERYTHING IS BAD FOR GOLD! That’s what they have to get you to believe for the currency system of the world to make it through one more day. When that one more day doesn’t come if you listen to these people you will be left far behind and in an incredibly short timeframe.

Since 1970 the money supply of the world has increased more than 20 times the industrial production of the same period. This IS inflation. There is now more paper money added to the existing pile of money in the world EACH YEAR, close to $4 trillion, than the value of all the gold mined in human history and the pace is accelerating to the point that the paper money is beginning to be selectively rejected. Do you not believe that holding gold and silver will not go up more in value than paper nothing? This is all you ever have to know about gold and silver. PERIOD!

There is a favorite saying that I like very much attributed to Sidney Greenberg: “A successful man is one who can lay a firm foundation with the bricks that others throw at him.”

They are throwing bricks at you right now and they are made of gold and silver. GRAB THEM!

Richard J. Greene
June 28, 2007
Clearwater, Florida

Individual gold bullion trading to be launched in China in July

Appropriately, during China’s year of the Golden Boar, the Shanghai Gold Exchange announced that it will offer gold bullion trading for retail investors next month.
by Dorothy Kosich
Tuesday , 26 Jun 2007

The Shanghai Gold Exchange is launching individual gold bullion trading next month through a partnership with China’s Industrial Bank.

The Shanghai Daily reported Tuesday that the gold bourse has scheduled a joint briefing in early July with Industrial Bank about the service.

The exchange will also subsequently launch trading through Huaxia Bank. Industrial and Commercial Bank of China is likely to be the third entity to join the bullion trading scheme.

China’s central bank, the People’s Bank of China, gave approval for the gold bourse to start nationwide gold trading services at the end of 2006, the Shanghai Gold Exchange said Monday.

Under the new trading scheme, individual investors will be able to trade in gold from a minimum threshold of 100 grams, which would cost roughly 16,000 yuan (US$2,099). Investors can take home the bullion at lower prices than those of jewelers and coin makers. For example, investment-grade bullion fetches more than a 10% premium in the market.

The Bank of China and China Construction Bank are among the lenders that already offer virtual gold trading betting on prices through a special bank account. However, investors can’t actually hold the gold bullion.

Earlier this month, the Shanghai Gold Exchange said it will work with more commercial banks to offer gold to retail investors. The Chinese have traditionally kept gold bullion as a safe haven to hedge against inflation and as a symbol of good fortune, according to the Shanghai Daily.

The Shanghai Exchange now trades gold, platinum and silver.

By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, June 26, 2007

The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.

The group said the fast-moving crisis at two Bear Stearns hedge funds had exposed the underlying rot in the US sub-prime mortgage market, and the vast nexus of collateralised debt obligations known as CDOs.

“Excess liquidity in the global system will be slashed,” it said. “Banks’ capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing.”

Charles Dumas, the group’s global strategist, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market. The sale had to be called off after buyers took just $200 million of the $850 million mix.

“The banks were not prepared to bid over 85 percent of face value for CDOs rated A or better,” he said.

“God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30 percent.

“We don’t know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750 billion of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850 billion.”

US property writer Paul Muolo described the Bear Stearns crisis as the “subprime Chernobyl,” saying the bank had created a “cone of silence.”

Abandoned by fellow banks, Bear Stearns has now put up $3.2 billion of its own money to rescue one of the funds, a quarter of its capital.

This is the biggest bailout since the Long-Term Capital Management crisis in 1998, which Bear Stearns refused to join at the time. Bear Stearns is now alone, a case of rough justice being served.

Lombard Street’s warning comes as fresh data from the US National Association of Realtors shows that the glut of unsold homes reached a record of 8.9 months supply in May. Sales of existing homes slid to an annual rate of 5.99 million.

The median price fell for the 10th month in a row to $223,700, down almost 14 percent from its peak in April 2006. This is the steepest drop since the 1930s.

The Mortgage Lender Implode-Meter that tracks the US housing markets claims that 86 major lenders have gone bankrupt or shut their doors since the crash began.

The latest are Aegis Lending, Oak Street Mortgage, and The Mortgage Warehouse.

“There isn’t a recovery about to happen,” said Ara Hovanian, head of the building group Hovanian Enterprise.

Nouriel Roubini, economics professor at New York University, said there were now concerns about “systemic risk fallout” from the Bear Stearns debacle as investors look more closely at the real value of CDOs.

“These highly illiquid securities have been priced so far on unrealistic and distorted credit ratings as the ratings industry has been complicit,” he said.

“They have not been rerated in a way that is consistent with rising subprime default rates,” he said. “That is why Wall Street is in a panic. Losses will be massive once these assets are correctly priced to market.”

Lombard Street said the Bear Stearns fiasco was the tip of the iceberg. The greatest risk lies in the “toxic tranches” of lower-grade securities held by the banks.

Much-trumpeted claims that banks had shifted off the riskiest credit exposure on to the asset markets was “largely a fiction,” said Mr Dumas.

The worst of the US property crisis has yet to hit since there is an overhang of $2,000 billion of mortgages with adjustable rates that have yet to be reset. Many borrowers could see payments jump by half, or even double.

At the same time, a spike in 10-year US bond yields by 0.65 percentage points over the last six weeks has drastically repriced the cost of fixed mortgages, knocking away a key prop for the US housing market.

“With defaults at their highest in the 37 years that records have been kept, it could be a long hot summer,” said Mr Dumas.

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In his new commentary, silver market analyst Ted Butler reflects on today’s smashdown in the precious metals. It’s titled “Blood from a Stone” and you can find it at GoldSeek’s companion site, SilverSeek, HERE
By Roger Wiegand
Jun 21 2007 3:50PM

What traders need to be careful of is a nasty stock markets smash this fall which could take down most of the global markets to some extent. This kind of pressure would sell all varieties of stocks, bonds, derivatives, debt instruments and futures and commodities markets. After such an event, we think those markets in precious metals including stocks; futures and cash prices would level off and rally again. The bonds are going to keep selling and the U.S. Dollar sliding beneath 80.00 is a danger to the entire global financial system. We predict Japan will grudgingly help prop the dollar when its apparent failure is imminent.

In our view, almost all nations of the world no matter what their feelings toward the USA would work in concert to prop the dollar. If the dollar takes a really big smash, we think everything goes down including even some of the best fiat currencies like the Canadian Dollar, Euro, Swiss Franc, New Zealand, and Australian dollars. This is simply unacceptable for not only those in power within the United States but in other nations as well. A crashing dollar would slop-over into most markets and the foreign dollar holders would take an unprecedented beating.

One of our excellent analyst friends has suggested the United States Treasury and Federal Reserve could chop the U.S. Dollar in half deliberately to reduce by 50% the debts of the United States. This is a really scary idea as it could have unconsidered ramifications and a substantial blow-back from other hidden aspects of finance. Trader Tracks takes the fall cycle of 2007 seriously and we will be devising an elaborate plan for risk control based upon our forecasts and market expectations. HIGH RISK AHEAD.

Fall Selling for Stocks, other Markets Becoming Visible with Early Signals

Our fall 2007 markets predictions are showing signs of shaping-up as we have forecast. The large stock index markets should be selling and precious metals ought to be in a strong rally. We remain quite observant and respectful of the Plunge Protection Team and their abilities to twist and bend these markets to different trends. Never underestimate these market fixers and their power to temporarily make trouble for precious metals traders.” – Traderrog

Read the entire article HERE

By Michael Kosares
Centennial Precious Metals, Denver
Thursday, June 21, 2007

Those who say that the price of gold has been kept in check or driven down by central bank gold sales are looking in the wrong direction for an explanation of why gold has remained relatively rangebound.

Though these sales contribute in a limited way to holding the gold price in check, they are a minor back-and-fill operation more than a major policy-driven attempt to keep the price down.

The mere threat of sales and warnings about them from the press are as much factors in the market as actual sales (which, by the way, usually occur in the background, with little effect on the price).

Those who dwell on central bank sales allow the convenient explanation to divert their attention from the more complex circumstances affecting gold.

In the end, the result of all this activity is to present more opportunities for the more fundamentally attuned, so we shouldn’t mind it too much.

Many years ago I wrote a magazine article titled “The Myth of Central Bank Gold Sales.” It was an attempt to counter the mainstream press’ view that all central banks were dumping gold. Nothing could have been further from the truth. Only a few central banks at any given time are sellers, and those sales generally are forced by circumstances — that is, a poor balance-of-payments position, an attempt to meet Maastricht Treaty requirements, the need for a gold lender of last resort, etc. Gold sales (and leases) now are regulated by the Central Bank Agreement on Gold and so already are a known quantity in the gold market.

Few in the inner sanctum of the gold business believe that central banks sell gold because they want to get a better return on their reserves. Those who work in the physical market where mass tonnages are traded see the gold reaching the market as a blessing. One wonders where they would be if the central banks couldn’t be induced to sell gold.

Some analysts recently attempted to tell us that central banks were again flooding the market with gold. This too was slightly wide of the plate. In reality, the amount of gold reaching the market so far this year is the same as last year. If the most recent bout of sales was an attempt to drive down the price of gold, it has met with limited success at best. As of this writing, gold is down 5.4 percent from its peak in April but up 2.5 percent on the year — and gold’s traditionally good months are still ahead of us.

To whatever extent central bank sales have dampened the price, they also have presented buying opportunities for those who see through the veneer and understand the real reasons for gold ownership — as a means to long-term asset preservation and hedge against currency debasement.

We now are in the usual seasonal doldrums in gold, and if the past performance of this bull market holds true, 2007 still could be a good year.

Central bank activity in the gold market is regulated, essentially bullish, and an inducement to buy, not sell.

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